Summary of Significant Accounting Policies (Policies)

The accompanying consolidated financial statements are unaudited
and have been prepared in accordance with accounting principles
generally accepted in the United States of America (“U.S.
GAAP”) and reflect all adjustments, which consist solely of
normal recurring adjustments, needed to fairly present the
financial results for these periods. The consolidated financial
statements and notes thereto are presented as prescribed by
Form 10-Q. Accordingly,
certain information and note disclosures normally included in
financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have
been omitted. The accompanying consolidated financial statements
should be read in conjunction with the financial statements for the
fiscal years ended May 31, 2018 and 2017 and notes thereto in
the Company’s Annual Report on Form 10-K andForm 10-K/A for the fiscal
year ended May 31, 2018, filed with the Securities and
Exchange Commission on July 27, 2018 and September 28,
2018, respectively. Operating results for the three months ended
November 30, 2018 are not necessarily indicative of the
results that may be expected for the entire year. In the opinion of
management, all adjustments have been made, which consist only of
normal recurring adjustments necessary for a fair statement of
(a) the results of operations for the three and six months
ended November 30, 2018 and November 30, 2017,
(b) the financial position at November 30, 2018 and
(c) cash flows for the six month periods ended
November 30, 2018 and November 30, 2017.

The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries, CytoDyn Operations Inc.,
Advanced Genetic Technologies, Inc. (“AGTI”) and
CytoDyn Veterinary Medicine LLC (“CVM”), of which both
AGTI and CVM are dormant entities. All intercompany transactions
and balances are eliminated in consolidation.

Certain prior year amounts shown in the accompanying consolidated
financial statements have been reclassified to conform to the 2018
presentation. These reclassifications did not have any effect on
total current assets, total assets, total current liabilities,
total liabilities, total stockholders’ (deficit) equity, net
loss or loss per share.

The consolidated accompanying financial statements have been
prepared on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the
normal course of business. As shown in the accompanying
consolidated financial statements, the Company had losses for all
periods presented. The Company incurred a net loss of $28,718,950
for the six months ended November 30, 2018 and has an
accumulated deficit of $201,858,345 as of November 30, 2018.
These factors, among others, raise substantial doubt about the
Company’s ability to continue as a going concern.

The consolidated financial statements do not include any
adjustments relating to the recoverability of assets and
classification of liabilities that might be necessary should the
Company be unable to continue as a going concern. The
Company’s continuation as a going concern is dependent upon
its ability to obtain additional operating capital, complete
development of its product candidates, obtain U.S. Food &
Drug Administration (“FDA”) approval, outsource
manufacturing of the product candidates, and ultimately achieve
initial revenues and attain profitability. The Company is currently
engaging in significant research and development activities related
to these product candidates, and expects to incur significant
research and development expenses in the future primarily related
to its clinical trials. These research and development activities
are subject to significant risks and uncertainties. The Company
intends to finance its future development activities and its
working capital needs largely from the sale of equity and debt
securities, combined with additional funding from other traditional
sources. There can be no assurance, however, that the Company will
be successful in these endeavors.

The preparation of the consolidated financial statements in
accordance with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities
at the date of consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Cash is maintained at federally insured financial institutions and,
at times, balances may exceed federally insured limits. The Company
has never experienced any losses related to these balances.
Balances in excess of federally insured limits at November 30,
2018 and May 31, 2018 approximated $0.5 million and
$1.1 million, respectively.

The Company follows the provisions of Financial Accounting
Standards Board (“FASB”) ASC Topic 350
Intangibles-Goodwill and Other, which establishes accounting
standards for the impairment of long-lived assets such as
intangible assets subject to amortization. The Company reviews
long-lived assets to be held and used for impairment whenever
events or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable. If the sum of the
undiscounted expected future cash flows over the remaining useful
life of a long-lived asset group is less than its carrying value,
the asset is considered impaired. Impairment losses are measured as
the amount by which the carrying amount of the asset group exceeds
the fair value of the asset. There were no impairment charges for
the six months ended November 30, 2018 and 2017. The value of
the Company’s patents would be significantly impaired by any
adverse developments as they relate to the clinical trials pursuant
to the patents acquired as discussed in Notes 7 and 9.

Research and development costs are expensed as incurred. Clinical
trial costs incurred through third parties are expensed as the
contracted work is performed. Where contingent milestone payments
are due to third parties under research and development
collaboration arrangements or other contractual agreements, the
milestone payment obligations are expensed when the milestone
conditions are probable and the amount of payment is reasonably
estimable.

The Company may scale-up and make
commercial quantities of its product candidate prior to the date it
anticipates that such product will receive final FDA approval.
The scale-up and
commercial production of pre-launch inventories
involves the risk that such products may not be approved for
marketing by the FDA on a timely basis, or ever. This risk
notwithstanding, the Company may scale-up andbuild pre-launch inventories
of product that have not yet received final governmental approval
when the Company believes that such action is appropriate in
relation to the commercial value of the product launch opportunity.
The determination to capitalize is made once the Company (or its
third party development partners) has filed a Biologics License
Application (“BLA”) that has been acknowledged by the
FDA as containing sufficient information to allow the FDA to
conduct its review in an efficient and timely manner and management
is reasonably certain that all regulatory and legal requirements
will be satisfied. This determination is based on the particular
facts and circumstances relating to the expected FDA approval of
the drug product being considered. As of November 30, 2018 and
May 31, 2018, the Company did not have pre-launch inventory
that qualified for capitalization pursuant to U.S. GAAP ASC 330
“Inventory.”

Level 2. Observable inputs other than Level 1 prices,
such as quoted prices for similar assets or liabilities, quoted
prices in markets with insufficient volume or infrequent
transactions (less active markets), or model-derived valuations in
which all significant inputs are observable or can be derived
principally from or corroborated with observable market data for
substantially the full term of the assets or liabilities.
Level 2 inputs also include non-binding market
consensus prices that can be corroborated with observable market
data, as well as quoted prices that were adjusted for
security-specific restrictions.

Level 3. Unobservable inputs to the valuation methodology are
significant to the measurement of the fair value of assets or
liabilities. These Level 3 inputs also include non-binding market
consensus prices or non-binding broker quotes
that the Company was unable to corroborate with observable market
data.

Liabilities measured at fair value on a recurring basis by level
within the fair value hierarchy as of November 30, 2018 and
May 31, 2018 is as follows:

Fair Value
Measurement at

Fair Value
Measurement at

November 30, 2018 (1)

May 31, 2018 (1)

Using

Using

Level 3

Total

Level 3

Total

Liabilities:

Derivative liability - warrants

$

1,789,066

$

1,789,066

$

1,323,732

$

1,323,732

Derivative liability - convertible note redemption provision

1,286,076

1,286,076

—

—

Total liabilities

$

3,075,142

$

3,075,142

$

1,323,732

$

1,323,732

(1)

The Company did not have any assets or liabilities
measured at fair value using Level 1 or 2 of the fair value
hierarchy as of November 30, 2018 and May 31, 2018.

A financial instrument’s level within the fair value
hierarchy is based on the lowest level of any input that is
significant to the fair value measurements. These instruments are
not quoted on an active market. The Company uses a Binomial Lattice
Model to estimate the value of the warrant derivative liability and
a Monte Carlo Simulation to value the derivative liability of the
redemption provision within a convertible promissory note. These
valuation models were used because management believes they reflect
all the assumptions that market participants would likely consider
in negotiating the transfer of the instruments. The Company’s
derivative liabilities are classified within Level 3 of the
fair value hierarchy because certain unobservable inputs were used
in the valuation models. The following is a reconciliation of the
beginning and ending balances for liabilities measured at fair
value on a recurring basis using significant unobservable inputs
(Level 3) during the six months ended November 30, 2018 and
the year ended May 31, 2018:

U.S. GAAP requires companies to measure the cost of employee
services received in exchange for the award of equity instruments
based on the fair value of the award at the date of grant. The
expense is to be recognized over the period during which an
employee is required to provide services in exchange for the award
(requisite service period) or when designated milestones have been
achieved.

The Company accounts for stock-based awards established by the fair
market value of the instrument using the Black-Scholes option
pricing model utilizing certain weighted average assumptions
including stock price volatility, expected term and risk-free
interest rates, as of the grant date. The risk-free interest rate
assumption is based upon observed interest rates appropriate for
the expected term of the stock-based award. The expected volatility
is based on the historical volatility of the Company’s common
stock on monthly intervals. The computation of the expected option
term is based on the “simplified method,” as the
Company issuances are considered “plain vanilla”
options. For stock-based awards with defined vesting, the Company
recognizes compensation expense over the requisite service period
or when designated milestones have been achieved. The Company
estimates forfeitures at the time of grant and revised, if
necessary, in subsequent periods, if actual forfeitures differ from
those estimates. Based on limited historical experience of
forfeitures, the Company estimated future unvested forfeitures at
0% for all periods presented. Periodically, the Company will issue
restricted common stock to third parties as compensation for
services rendered. Such stock awards are valued at fair market
value on the effective date of the Company’s obligation.

On August 24, 2017, at the 2017 Annual Meeting of
Stockholders, a proposal was approved to increase the total number
of authorized shares of common stock from 350,000,000 to
375,000,000. On June 7, 2018, at a special meeting of
stockholders, a proposal was approved to increase the total number
of authorized shares of common stock of the Company from
375,000,000 to 450,000,000. Subsequent to each stockholders’
meeting, an amendment to the Company’s Certificate of
Incorporation was filed with the Secretary of State of the State of
Delaware to give effect to each authorized share increase.

On November 8, 2018 at the 2018 Annual Meeting of
Stockholders, a proposal was approved to increase the total number
of authorized shares of common stock from 450,000,000 to
600,000,000. Subsequent to the meeting, an amendment to the
Company’s Certificate of Incorporation was filed with the
Secretary of State of the State of Delaware to give effect to the
authorized share increase.

The Company’s Board of Directors is authorized to issue up to
5,000,000 shares of preferred stock without stockholder approval.
As of November 30, 2018, the Company has authorized the
issuance of 400,000 shares of Series B Convertible Preferred Stock,
of which 92,100 shares were outstanding. The remaining preferred
shares authorized have no specified rights.

Treasury stock purchases are accounted for under the par value
method, whereby the cost of the acquired stock is recorded at par
value. During the year ended May 31, 2018, the Company
purchased 159,011 shares of $0.001 par value treasury stock for
shares tendered in satisfaction of income tax withholding, in
connection with incentive compensation paid to certain officers in
the form of common stock.

During the six months ended November 30, 2018 and the year
ended May 31, 2018, the Company incurred approximately
$0.6 million and $1.5 million of debt discount related to
the issuance of convertible notes, as described in Note 4. The
discount is amortized over the life of the convertible promissory
notes. During the six months ended November 30, 2018 and
November 30, 2017, the Company recorded approximately $117,500
and $1.2 million of related amortization.

During the six months ended November 30, 2018 and the year
ended May 31, 2018, the Company incurred direct costs
associated with the issuance of convertible notes, as described in
Note 4, and recorded approximately $0.1 million and
$0.4 million, respectively of debt issuance costs. In
connection with the debt issuance costs, the Company recognized
approximately $20,000 and $0.3 million of related amortization
for the six months ended November 30, 2018 and
November 30, 2017, respectively.

The Company incurred direct incremental costs associated with the
sale of equity securities, as described in Notes 10 and 11. The
costs were approximately $3.5 million for the year ended
May 31, 2018, and approximately $2.7 million and
$0.6 million for the six months ended November 30, 2018
and November 30, 2017, respectively. The offering costs were
recorded as a component of equity upon receipt of proceeds.

The Company periodically issues warrants to consultants for various
services. The Black-Scholes option pricing model, as described more
fully above, is utilized to measure the fair value of the equity
instruments on the date of issuance. The Company recognizes the
compensation expense associated with the equity instruments over
the requisite service or vesting period.

Basic loss per share is computed by dividing the net loss by the
weighted average number of shares of common stock outstanding
during the period. Diluted loss per share would include the
weighted average number of shares of common stock outstanding and
potentially dilutive common stock equivalents. Because of the net
losses for all periods presented, the basic and diluted weighted
average shares outstanding are the same since including the
additional shares would have an anti-dilutive effect on the loss
per share. For this reason, common stock options and warrants to
purchase 155,836,676 and 87,551,801 shares of common stock were not
included in the computation of basic and diluted weighted average
number of shares of common stock outstanding for the six months
ended November 30, 2018 and November 30, 2017,
respectively. Additionally, as of November 30, 2018, shares of
Series B convertible preferred stock in the aggregate of 92,100
shares can potentially convert into 921,000 shares of common
stock.

Deferred taxes are provided on the asset and liability method,
whereby deferred tax assets are recognized for deductible temporary
differences and operating loss and tax credit carry forwards and
deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases.
Future tax benefits for net operating loss carry forwards are
recognized to the extent that realization of these benefits is
considered more likely than not. Deferred tax assets are reduced by
a valuation allowance when, in the opinion of management, it is
more likely than not that some portion or all of the deferred tax
assets will not be realized.

The Company follows the provisions of FASB Accounting Standards
Codification (“ASC”) ASC 740-10 “Uncertainty in Income
Taxes”. A reconciliation of the beginning and ending amount
of unrecognized tax benefits has not been provided since there are
no unrecognized benefits for all periods presented. The Company has
not recognized interest expense or penalties as a result of the
implementation of ASC 740-10. If there were an unrecognized
tax benefit, the Company would recognize interest accrued related
to unrecognized tax benefit in interest expense and penalties in
operating expenses.

The Tax Cuts and Jobs Act (the “Act”) was enacted on
December 22, 2017. The Act reduces the U.S. federal corporate
tax rate from 35% to 21% effective as of January 1, 2018. In
accordance with Section 15 of the Internal Revenue Code, we
utilized a blended rate of 28.62% for our fiscal 2018 tax year, by
applying a prorated percentage of the number of days prior to and
subsequent to the January 1, 2018 effective date. For the
fiscal year ended May 31, 2018, we recorded provisional
charges for the re-measurement of the deferred tax
assets and reduced our deferred taxes before the valuation
allowance by $17,497,051 to our income tax expense. The net tax
expense for the year ended May 31, 2018, is zero, due to the
reduction in the deferred tax valuation allowance. For the
year ending May 31, 2019 a deferred tax rate of 21% is being
utilized and a corresponding valuation allowance adjustment is
being recorded for the generation of deferred tax assets reversing
in the future. For the three months ending November 30, 2018
the Company recorded a $2,826,919 deferred income tax benefit
from a reduction in the Company’s deferred tax valuation
allowance resulting from recording a deferred tax liability of
$2,826,919 in connection with the acquisition of assets in the
ProstaGene LLC transaction (see Note 7) . The deferred tax
liability represents the tax effect of the difference in the
carrying value of the assets and their tax basis at acquisition.
The Company has a full valuation allowance on the Company’s
net deferred tax assets as of November 30, 2018 and
May 31, 2018, as management does not consider it more than
likely than not that the benefits from the deferred taxes will be
realized.

Disclosure of accounting policy for basis of accounting, or basis of presentation, used to prepare the financial statements (for example, US Generally Accepted Accounting Principles, Other Comprehensive Basis of Accounting, IFRS).

Disclosure of accounting policy for cash and cash equivalents, including the policy for determining which items are treated as cash equivalents. Other information that may be disclosed includes (1) the nature of any restrictions on the entity's use of its cash and cash equivalents, (2) whether the entity's cash and cash equivalents are insured or expose the entity to credit risk, (3) the classification of any negative balance accounts (overdrafts), and (4) the carrying basis of cash equivalents (for example, at cost) and whether the carrying amount of cash equivalents approximates fair value.

Disclosure of accounting policy regarding (1) the principles it follows in consolidating or combining the separate financial statements, including the principles followed in determining the inclusion or exclusion of subsidiaries or other entities in the consolidated or combined financial statements and (2) its treatment of interests (for example, common stock, a partnership interest or other means of exerting influence) in other entities, for example consolidation or use of the equity or cost methods of accounting. The accounting policy may also address the accounting treatment for intercompany accounts and transactions, noncontrolling interest, and the income statement treatment in consolidation for issuances of stock by a subsidiary.

Disclosure of accounting policy for computing basic and diluted earnings or loss per share for each class of common stock and participating security. Addresses all significant policy factors, including any antidilutive items that have been excluded from the computation and takes into account stock dividends, splits and reverse splits that occur after the balance sheet date of the latest reporting period but before the issuance of the financial statements.

Disclosure of accounting policy for recognizing and measuring the impairment of long-lived assets. An entity also may disclose its accounting policy for long-lived assets to be sold. This policy excludes goodwill and intangible assets.

Disclosure of accounting policy for income taxes, which may include its accounting policies for recognizing and measuring deferred tax assets and liabilities and related valuation allowances, recognizing investment tax credits, operating loss carryforwards, tax credit carryforwards, and other carryforwards, methodologies for determining its effective income tax rate and the characterization of interest and penalties in the financial statements.

Disclosure of accounting policy for costs it has incurred (1) in a planned search or critical investigation aimed at discovery of new knowledge with the hope that such knowledge will be useful in developing a new product or service, a new process or technique, or in bringing about a significant improvement to an existing product or process; or (2) to translate research findings or other knowledge into a plan or design for a new product or process or for a significant improvement to an existing product or process.

Disclosure of accounting policy for stock option and stock incentive plans. This disclosure may include (1) the types of stock option or incentive plans sponsored by the entity (2) the groups that participate in (or are covered by) each plan (3) significant plan provisions and (4) how stock compensation is measured, and the methodologies and significant assumptions used to determine that measurement.

Disclosure of accounting policy for redeemable preferred stock issued. This disclosure may include the accounting treatment for the difference, if there is any, between the carrying value and redemption amount. For example, describe whether the issuer accretes changes in the redemption value.